Financial Management Report: Financial Management in Organizations

This report provides a comprehensive overview of financial management, encompassing its definition and the significance of financial functions within organizations. It delves into the pivotal role of a financial manager, outlining responsibilities such as fund raising, allocation, and profit planning. The report further explores diverse sources of finance, categorizing them by time period (long-term, medium-term, and short-term) and explaining their respective applications. It also includes the formula of different sources of finance along with their calculations. The report concludes by summarizing key concepts and the importance of financial decision-making in maintaining an optimal capital structure. The report is based on the assignment brief which requires a 1000 words report on the topic. The report also includes the references from books, journals and online sources to make it more authentic.

FINANCIAL
MANAGEMENT REPORT

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY ..................................................................................................................................3
Meaning of financial management...............................................................................................3
Importance of financial functions within the organisations.........................................................3
Role of the financial manager in a company...............................................................................4
Sources of finance........................................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................1

INTRODUCTION
Financial management is a big term in which we study about the term finances. There are
various sources of finance which is available to the company in order to raise the fund from the
market. This report will state the term of financial management along with the importance of
financial functions within the company. This report will also state the role of the financial
manager in the company. In this report we will study about the various source of the finance
available to business to form a company's capital structure in order to start and run the business.
This report will also state the formula of different sources of finance along with their
calculations.
MAIN BODY
Meaning of financial management
Financial management is a wide term in which we study about the three financial
decision i.e. investment decision, financial decision, dividend decision. (Shapiro and Hanouna,
2019)Financial management is a process of planning, collecting, directing and controlling the
financial activities of the company such as acquiring of fund, utilization of fund and profit &
wealth increasing.
Importance of financial functions within the organisations
Finance function includes the decision related to procurement of fund and utilization of
fund. The finance function is classified into three sources such as long term finance, medium
term finance and short term finance.(Siminica, Motoi and Dumitru, 2017) The importance of
financial function within the company are:
 Identify needs of finance: Every company needs money in order to start the business.
This state the initial capital requirement of the company to start the business. So the
finance function become important in order to identify how much fund is required to raise
from the market.
 Identify sources of finance: There are various of finance sources are available in the
market such as equity, debt, preference, bonds, bank loan, overdraft etc. on the basis of
their short, medium and long term. So the finance function includes identify the best
sources of finance.
 Comparison of various sources: After identifying the sources of finance the most
important finance function is to compare those sources and select the best source out of

the various alternatives. It is always good to select the source which offer low cost of
acquisition.
 Investment: After the selection of sources of finance is get done, it is a time to invest
those fund in various investment plan. Finance function help the company to select the
best option plan. It is always beneficial to select the investment plan which show higher
rate of return.
Role of the financial manager in a company
Financial manager is handling the finance related activities in the firm. Finance manager
is always responsible for the selection of sources and investment plan in order to increase the
profitability of the firm.(Loke, 2017) The role of the financial manager in a company includes:
 Raising of fund: One of the role of the finance manager is to raise the fund such as debt
and equity from the market. It is the responsibility of the finance manager is to make a
balance between the debt and equity in order to maintain the optimum capital structure of
the firm.
 Allocation of fund: Once the fund are raised from the market it is the responsibility of the
manager to allocate the fund in optimal way based on the size of the firm, status of the
assets and mode of fund.
 Profit planning: After allocating the fund the main responsibility of the finance manager
are to decide whether to distribute the profit among equity shareholders or retain the
profit for future growth or both.
 Understanding the capital market: Understanding the capital market is the most important
role of finance manager because their each step affect the financial operation of the
company. Securities listed on the stock exchange have huge risk and understanding the
stocks along with their risk involvement is important for finance manager.
Sources of finance
It means the options available to the business for raising the fund to start or run the
business. The sources of fund are divided on the basis of time period, ownership and source of
generation.(Madura, 2020) Sources of fund on the basis of their time period are long term,
medium term and short term finance.
1. Long term finances: Long term finances are the funds that are available for the time
period of more than 5 to 10 years or more depending on various factors. When company

wants to invest the large amount of fund on project such as purchasing plant and
machinery or buying land and building then company uses the long term finances to raise
the fund in order to achieve the firm goals. It includes equity shares, preference shares,
debentures, bonds, retained earnings, term loans, venture funding, assets securitisation
and international financing.
2. Medium term finances: Medium term finances are the funds available to the firm for a
time period of 3 to 5 years. When the long term financing is not available in the market
and company's deferred revenue expenditure are written off over a period of 3 to 5 years
then the company choose medium term source of finances. It includes preference shares,
debentures, bonds, lease finance and medium term loans from financial institution and
commercial banks.
3. Short term finances: Short term finances are the funds that are available to the company
for a period of less than one year. It is also known as working capital financing. When
company need funds for financing the current assets then company go for the short term
finances. It includes trade credits, bill discounting, factoring services, advances from
debtors, creditors, trade payables & receivables, fixed deposits and working capital loans.
CONCLUSION
In this report we understand the term financial management and also the different
financial function within the company. This report states the various roles of the financial
managers in a company as they are responsible for the financial performance of the company.
This report also states the different sources of finance available to the company and selecting the
best sources in order to maintain the optimum capital structure of the firm. Finance manger is
responsible for understanding and utilizing the capital market along with their risk.

REFERENCES
Books and journals
Shapiro, A. C. and Hanouna, P., 2019. Multinational financial management. John Wiley &
Sons.
Siminica, M., Motoi, A. G. and Dumitru, A., 2017. Financial management as component of
tactical management. Polish Journal of Management Studies. 15.
Loke, Y. J., 2017. The influence of socio-demographic and financial knowledge factors on
financial management practices of Malaysians. International Journal of Business and
Society. 18(1).
Madura, J., 2020. International financial management. Cengage Learning.
Bulturbayevich, M. B. and et.al., 2020. Modern features of financial management in small
businesses. International Engineering Journal For Research & Development. 5(4).
pp.5-5.
Online
Sources of Finance | Owned-Borrowed, Long-Short Term, Internal-External. 2021 [Online].
Available through:<https://efinancemanagement.com/sources-of-finance>
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